What are the Current Liabilities?
Current liabilities are an enterprise’s obligations or debts that are due within a year or within the normal functioning cycle. Moreover, current liabilities are settled by the use of a current asset, either by creating a new current liability or cash. Current liabilities appear on an enterprise’s balance sheet and incorporate accounts payable, accrued liabilities, short-term debt and other similar debts.
The average amount of current liabilities is a vital component of various measures of the short term liquidity of a trading concern, comprising of :
|Current Ratio||It is current assets divided by current liabilities|
|Quick Ratio||It is computed as current assets minus inventory which is divided by current liabilities|
|Cash Ratio||These are the cash and equivalent of cash which is divided by current liabilities|
The current liabilities formula:
Current Liabilities = (Notes Payable) + (Accounts Payable) + (Short-Term Loans) + (Accrued Expenses) + (Unearned Revenue) + (Current Portion of Long-Term Debts) + (Other Short-Term Debts)
If company XYZ has current liabilities mentioned below
Account payable – ₹35,000
Accumulated wages – ₹85,000
- Accumulated expenses- ₹65,000
Rents- ₹ 1,50,000
- Other debts- ₹85,000
To calculate the total current liability, add all the accounts amount (A2-A7). This calculation will give the total current liabilities amount for that particular year. Likewise, the calculation can be done for multiple years and see the difference.
The above mentioned is the concept, that is elucidated in detail about ‘How to calculate Current Liabilities?’ for the Commerce students. To know more, stay tuned to BYJU’S.
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